How American Government’s Supposed to Work

It appears things are finally reversing course. After years of expanding, the bull market in government may have finally hit an inflection point. This is great news. For a reduction in the size of government compared to the overall economy will be beneficial to everyone.

Short term adjustments and restructuring will have to occur if the shutdown continues long enough. Federal workers will lose their jobs and will have to find new ones in the private sector. We won’t pretend this will be easy. Nor will we pretend it will be pain free.

Nonetheless, we’re confident many federal workers will soon find themselves in more engaging and useful endeavors. Many of them are good, intelligent and enterprising individuals who happened to end up in a bad trade. How were they to know that following 9/11 and the 2008 financial crisis the government would so grossly overstep their authority? Right now could be their golden opportunity to get out with their dignity intact.

Take Lisa Braswell, for instance. She’s was furloughed last Tuesday from her job as a management analyst at the National Institute of Health. According to CNBC, “she’s giving herself two weeks before she ‘pulls the panic alarm.’”

In the meantime, “Braswell listed 28 items on eBay, mostly high-end evening gowns, with an estimated value of $15,000 to $20,000 to clean out her closet.” We’re not quite sure what she means by pull the panic alarm…but we think with her new sales venture she is onto something. Maybe eBay won’t be the answer. But finding something people want and selling it to them at a profit is certainly a start.

Economic Fallacies Resurface

Obviously, many people will have to change their way of thinking. For whatever reason, the government shutdown has compelled some economists to say the most ridiculous and idiotic things. It’s as if, along with the government, their brains have shutdown too. Here’s what we mean…

“As for the broader economy,” remarked Rick Newman, “a lost job is a lost job — whether it’s a government bureaucrat, a unionized assembly worker or a technology wunderkind. Government workers spend most of their pay just like everybody else, and fewer people with money in their pockets means fewer people shopping for cars, fixing up their homes, buying stuff on Amazon or eating at restaurants.”

Where has Newman been? Doesn’t he know that Henry Hazlitt refuted this economic fallacy over 65 years ago? The chapter titled Disbanding Troops and Bureaucrats in Hazlitt’s classic work Economics In One Lesson makes minced meat of the notion government workers are needed so they can spend their money into the economy.

“Once again the fallacy comes from looking at the effects of this action only on the dismissed officeholder themselves and on the particular tradesmen who depend upon them,” explains Hazlitt. “Once again it is forgotten that, if these bureaucrats are not retained in office, the taxpayers will be permitted to keep the money that was formerly taken from them for the support of the bureaucrats. Once again it is forgotten that the taxpayers’ income and purchasing power go up by at least as much as the income and purchasing power of the former officeholders go down.

“If the particular shopkeepers who formerly got the business of these bureaucrats lose trade, other shopkeepers elsewhere gain at least as much. Washington is less prosperous and can, perhaps, support fewer stores; but other towns can support more.”

Do you see how it works? Smaller government means lower taxes. Lower taxes mean taxpayers retain more of the money they earn. Taxpayers spend this money into the economy and new jobs are created to fill the demand.

Hazlitt concludes that “When we can find no better argument for the retention of any group of officeholders than that of retaining their purchasing power it is a sign that the time has come to get rid of them.”

How American Government’s Supposed to Work

Now is as good a time as any to taper back the federal payrolls, as far as we can tell. Unfortunately, at this point, the shutdown is more of a show than a real occurrence. In fact, 83 percent of the federal government, as measured by money being spent, is still operating. Still, we’ll take a government that’s 17 percent smaller than it was just one week ago any day.

We always thought the bull market in government would end with a great big crash. That it would implode under the pressure of its own dead weight. We never thought members of the House would have the guts to reverse it as a matter of policy.

But when it comes down to it, this is exactly how American government’s supposed to work. The Constitution grants the House of Representatives the power of the purse. It is their responsibility, as representatives of the people, to use this power to provide checks and balances. Conversely, it is irresponsible for the House to only serve to rubberstamp the biddings of the President.

If Obamacare and the debt ceiling are not issues worthy of standing up with a straight spine, sticking out your neck, and taking one square on the jaw, then we don’t know what are? Naturally, this should’ve been done long ago. Despite what you may think of Boehner or the Republican misfits in the House, if you believe in limited government, you should relish their spirit while it lasts.

The President, on the other hand, is behaving in a way polite company would call fatuous. Undoubtedly, the name calling deteriorates from there.

“They’ve shut down the government over an ideological crusade to deny affordable health insurance to millions of Americans,” Obama said. “In other words, they demanded a ransom just for doing their jobs.”

Precisely, Mr. President, that’s how American government’s supposed to work.